HBOS’s plight puts pressure on Bank

A second dramatic fall in HBOS’s share price in two days piled pressure on the Bank of England to restore confidence in the wholesale markets by fleshing out its plans for the new special liquidity scheme.

Senior bankers rounded on the central bank for pressing ahead with plans to shut down the existing SLS, which allows banks to swap untradeable mortgage securities for liquid Treasury stock, despite the market turbulence.

They warned that the proposed replacement will not go far enough after Bank Governor Mervyn King said last week it would have a stricter time limit than the current three-year facility.

Liquidity concerns have resurfaced in the wake of Lehman Brothers’ collapse, which is expected to renew the freeze in wholesale markets that led to Northern Rock’s demise.

Tom Rayner, banks analyst at Citigroup, said: 'In specific cases, such as HBOS, we believe funding fears could increase the potential liquidity risk for the bank.'